IDATE: The People's Republic of China, Guest Country at the DigiWorld Summit 2006.

28(th )IDATE International conference: 14-15-16 November 2006 - Le Corum, Montpellier (France)

MONTPELLIER, France -- Over the past 28 years, IDATE's International Conference has earned its reputation as a cornerstone event for taking stock of the changes at work in the Broadband, Mobile and

Media industries. A veritable international platform for debate and discussion, following through on the success of its 2005 edition this year's DigiWorld Summit will once again provide an opportunity to examine those events that marked the year gone by, and those which will constitute the key challenges for the years ahead.

China, guest country at the DigiWorld Summit 2006

Since 2005, IDATE has chosen a guest country for the year (Japan in 2005). As part of this special focus, we invite a number of top level industry representatives, along with a prominent public authority to take part in the Conference's debates

Our goal in choosing China as our Guest Country this year is to further our understanding of the driving forces behind such a market and its players, and to take stock of its newfound effervescence in designing innovative services.

The DigiWorld Summit will provide an opportunity to compare the views of top-flight Chinese industry representatives and experts on hand:

* Yaoping JIANG, Vice Minister, Ministry of Information Industry China

* Gang LI, Vice President China Unicom

* Yu LI, Vice President Shanda

* Cheng LIN, President, ZTE Corporation Western Europe

* Yan WANG, Founder & Vice Chairman, Sina

An official representation from China Embassy in France and delegates from chinese companies will also attend the DigiWorld Summit 2006 during the three days of the conference.

Back to ChinaC*

In June 2006, IDATE and some of its members led a study mission in China. Here are the main extracts.

Upon returning from China, any attempt at summing up the experience needs to be undertaken carefully. Confining ourselves only to ICT markets, the current state of affairs can be divided quite clearly between telcos on the one hand and publishers on the other (internet portals, mobile and TV operators' value-added services). And, of course, not to be overlooked are hardware manufacturers whose recent stellar rise is shaking up the industrial landscape worldwide.

So what can we say about the telecom market? We are all well aware of the Chinese market's stunning growth - now constituting the globe's largest national base of fixed and mobile users. A still very high growth rate with close to 5 million new cellular subscribers a month. In the larger coastal cities (Beijing, ShanghaiC*) mobile penetration rates are now nearing 90%. The country is home to over 100 million web users, of which close to 50% via broadband. In terms of value, the market grew by around 12% in 2005, to a total 60 billion EURC* Despite which the top four telcos (two mobile: China Mobile and China Unicom, and two fixed: China Telecom and China Netcom) are all having to contend with major uncertainties. All are fully-owned by the State, even if some have launched IPOs on the Hong Kong or New York Exchange. They are all spin-offs of a once unique national carrier, the goal having been to instil competition, while promoting a geographical division to save on investments and specialise in either fixed or mobile telecoms.

The problem is that, over the past few months, the authorities have been indicating that the break-up of the national carrier is no longer relevant. There is too large a growth differential between the leaders, China Mobile and China Telecom, and their challengers. China Unicom in particular is struggling: in addition to having to manage its GSM network, it is having to deal with users' indifference to its new CDMA operations as well. Added to this, the steadily growing popularity of mobile is weighing on landline telcos, which are unable to compete with their (fixed wireless) PHS networks. More pertinent still is that the upcoming Olympic Games loom like a deadline over everything - with authorities aware that standards and 3G licences need to be in place by 2008. Naturally, they will do their utmost to give the biggest boost to the Chinese 3G standard, in hopes of limiting the royalties that need to be paid to Western companies. But TD-SCDMA is not yet as mature as CDMA 1X EVDO or W-CDMA, even if the pilot sites are running quite smoothly. China Mobile would probably prefer not to be chosen to promote the Chinese standard, and so be able to opt for W-CDMA, leaving it up to China Telecom to pioneer TD-SCDMA. In addition to their decisions over options for the 3G standard, the government will also need to create fixed/mobile telcos and work on rebalancing their size, possibly by cutting their numbers down to three. Once again, the players have been waiting for months for a decisionC* in vain. In addition to the fine tuning of TD-SCDMA, the reasons given for the delay include the fact that a certain waiting game needs to be played to avoid too much exposure of the gaps in equipment and technological levels between central China and the string of big cities along the coast (Beijing, Shanghai and Shenzhen) which would naturally be the first concerned by 3G. Furthermore, telcos are still closely bound up with provincial powers, which may also explain the complexity of talks over redefining the operators' perimeters. Also needed to be taken into account are the investments being made by foreign companies, such as Vodafone's in China Mobile, TelefE[thorn]nica's in Netcom and, much more recently, SKT's in UnicomC* along with Chinese telcos' investments in other companies - with cases in point that include Netcom's acquisition of a 20% stake in PCCW (which is interesting to the extent that the Hong Kong operator's main shareholder is looking to sell), and China Mobile's takeover of Millicom International Cellular.

We were all very surprised to discover the number of particularly dynamic and creative firms operating in the country's internet and mobile services markets. Even if subscribers currently have access only to GPRS bitrates, like South Korea and Japan, China is clearly mobile-centric. 20% of China Mobile subscribers' ARPU (less than 10 USD) is generated by non-voice revenues: SMS, MMS, ring back tone, gamesC* Per-unit revenues are low, but the number of subscribers and the market's steady growth well justifies the interest being placed in these companies. As to internet services, albeit less widely-used, they have produced a handful of heavyweights, including the Sina portal, IM QQ (15 million users), search engine Baidu and online gaming service, Sanda. These companies have managed to hold both Yahoo! and Google at bay, and all are enjoying very healthy growth, sustained primarily by advertising like in Europe and the US. They boast leading edge technologies, are fully in line with all the latest community trends like blogging and with video and musical content, and are proactive in promoting their own artists. Of course there is government control over content, even if those in charge of these sites feel that they have a little more freedom than the country' newspaper publishers.

The leading TV groups which, unlike websites, are public are also enjoying a healthy market. The World Cup is being given extensive coverage and is helping to serve as a dress rehearsal for the 2008 summer Olympics. As to TV programmes, trials are being conducted on websites, with mobile TV and IPTV. And several mobile TV standards are being experimented with, including a derivative of South Korea's T-DMB. Like in a great many countries, the ultimate choices are complicated by red tape: the MII is in charge of telecom regulation, and the SARFT of TV and radio. This is why IPTV exists only as an exception, with ISPs forbidden to include internet + TV bundles in their broadband offering, and the country's many cablecos remain confined to TV services only.

Here too the players are waiting for reforms even if conditions in the interim are, once again, still flexible enough to enable development and experimentation.

We would be remiss if we did not also include in this brief description of the current landscape a mention of China's impressive equipment and device makers. Even though Nokia and Motorola still occupy the top two spots in the national mobile handset market, Lenovo is enjoying a steady rise, while awaiting the comeback of companies like TCL and Bird with equipment better tailored to Chinese consumers' actual demands. On the network equipment side of things, all eyes are on the very solid JV Alcatel Shanghai Bell and the rivalry between Huawei and ZTE - with the former boasting a clear advantage in revenue growth (+56% in 2005) and internationalisation of its sales (exports up 58%), but both are making equal strides in the area of research, and in building a complete line of NGN solutions for both fixed and mobile access networks.

To put it briefly, it will be increasingly difficult to overlook what is happening in China when keeping track of the latest developments in the DigiWorld.

Yves GASSOT - CEO, IDATE

y.gassot@idate.org

About IDATE

Founded in 1977, IDATE is one of Europe's foremost market analysis and consulting firms, whose mission is to provide assistance in strategic decision-making for its clients in the Telecom, Internet and Media industries. IDATE has also been instrumental in providing a forum for debate amongst the markets' key players, notably thanks to the IDATE Foundation, the DigiWorld Summit and the Communications & Strategies Review.

Consulting - IDATE has established its credibility and independence in conducting consultancy and study assignments on behalf of its clients:

* Benchmarking: evaluation, modelling and forecasts, sector-specific analyses, surveys

* International benchmarking: positioning studies, strategic and competition analyses

* Public policies: public policy definition and assessment, project management, regulatory benchmarking

Research - IDATE'S clients benefit from the knowledge and expertise of its teams of specialists, and from its ongoing investment in its Digiworld information and strategic monitoring system - a veritable digital world observatory - along with access to a singular array of market reports, data, analyses and support services:

* Market reports: Atlas, Analysis & Focus Collections

* Quarterly updates: analyses and databases

* Monthly memo service: Executive Notes

* Annual round-up: the DigiWorld Yearbook

* Customised seminars: Strategic Briefing

Please find more information about the program :

www.digiworldsummit.com

For more information about IDATE's activities :

www.idate.org